UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6666
SALANT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3402444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1114 Avenue of the Americas, New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 221-7500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
-
As of August 3, 2000, there were outstanding 9,901,140 shares of the Common
Stock of the registrant.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Comprehensive Income/(Loss)
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
July 1, July 3, July 1,
July 3,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 45,830 $ 61,820 $102,486 $140,402
Cost of goods sold 31,718 52,052 74,733 113,801
------- -------- --------- --------
Gross profit 14,112 9,768 27,753 26,601
Selling, general and
administrative expenses (11,853) (13,022) (23,902) (29,765)
Royalty income 190 418 230 1,494
Goodwill amortization (130) (130) (260) (259)
Provision for division
restructuring costs (Note 5) -- -- -- (4,039)
Other income/(expense) 4 407 (8) 422
------- --------- -------- --------
Income/(loss) from continuing operations
before interest, income taxes and
extraordinary gain 2,323 (2,559) 3,813 (5,546)
Interest (income)/expense, net (291) (34) (544) 772
------- -------- -------- --------
Income/(Loss) from continuing operations
before income taxes and
extraordinary gain 2,614 (2,525) 4,357 (6,318)
Income taxes 12 37 12 60
------- --------- ------- --------
Income/(Loss) from continuing operations
before extraordinary gain 2,602 (2,562) 4,345 (6,378)
Discontinued operations (Note 6):
Loss from discontinued operations -- -- -- (1,955)
Extraordinary gain (Note 7) -- 24,703 -- 24,703
-------- --------- ------- --------
Net income $ 2,602 $ 22,141 $ 4,345 $ 16,370
======== ========= ======= ========
Basic and diluted income/(loss) per share (Note 8):
From continuing operations $ 0.26 $ (0.26)* $0.44 $ (0.64)*
From discontinued operations -- -- * -- (0.20)*
From extraordinary gain -- 2.47 * -- 2.47 *
------- -------- ------- ---------
Basic and diluted income/(loss)
per share $ 0.26 $ 2.21* $ 0.44 $ 1.63*
======== ========= ======== ========
Weighted average common
stock outstanding 9,901 10,000* 9,901 10,000*
======== ======== ======== =========
*1999 Information is pro-forma see Note 8.
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
-------- --------- ------- --------
<S> <C> <C> <C> <C>
Net income $ 2,602 $ 22,141 $ 4,345 $ 16,370
Other comprehensive income, net of tax:
Foreign currency translation adjustments (10) 22 21 58
-------- -------- -------- --------
Comprehensive income $ 2,592 $ 22,163 $ 4,366 $ 16,428
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
July 1, January 1, July 3,
2000 2000 1999
(Unaudited) (*) (Unaudited)
----------- ---------- -----------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 27,694 $ 30,116 $ 19,551
Accounts receivable, net 19,184 15,956 21,941
Inventories (Note 3) 40,921 41,669 41,617
Prepaid expenses and other current assets 6,087 5,490 5,113
Assets held for sale 100 100 1,173
---------- ---------- ----------
Total current assets 93,986 93,331 89,395
Property, plant and equipment, net 13,398 14,185 13,127
Other assets 13,649 14,287 13,734
---------- ---------- ----------
Total assets $ 121,033 $ 121,803 $ 116,256
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 12,349 12,097 9,795
Chapter 11 liabilities 3,218 4,604 6,105
Accrued liabilities 8,652 11,751 11,129
Reserve for business restructuring (Note 5) 1,757 2,308 4,608
Net liabilities of discontinued
Operations (Note 6) 988 1,309 205
--------- ---------- ---------
Total current liabilities 26,964 32,069 31,842
Deferred liabilities 4,102 4,133 3,895
Shareholders' equity:
Common stock (Note 1) 10,000 10,000 10,000
Additional paid-in capital 206,040 206,040 206,041
Deficit (122,952) (127,297) (131,527)
Accumulated other comprehensive income (Note 4) (2,923) (2,944) (3,995)
Less - treasury stock, at cost (198) (198) --
---------- ---------- ---------
Total shareholders' equity 89,967 85,601 80,519
---------- ---------- ----------
Total liabilities and shareholders' equity $ 121,033 $ 121,803 $ 116,256
========== ========== ==========
(*) Derived from the audited financial statements.
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------
July 1, July 3,
2000 1999
Cash Flows from Operating Activities:
<S> <C> <C>
Income/(loss) from continuing operations $ 4,345 $ (6,378)
Adjustments to reconcile income/(loss) from continuing
operations to net cash (used in)/provided by
operating activities:
Depreciation 2,004 2,521
Amortization of intangibles 260 259
Change in operating assets and liabilities
Accounts receivable (3,228) 16,418
Inventories 748 27,973
Prepaid expenses and other current assets (597) 198
Accounts payable 252 6,964
Accrued liabilities and reserve for
business restructuring (3,650) (2,242)
Chapter 11 liabilities (1,386) (17,915)
Deferred liabilities (31) (115)
-------- --------
Net cash(used in)/provided by continuing
operating activities (1,283) 27,683
Cash (used in)/provided by discontinued operations (321) 5,110
-------- --------
Net cash (used in)/provided by operating activities (1,604) 32,793
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (625) (2,112)
Proceeds from the sale of assets -- 27,227
Store fixture expenditures (214) (1,141)
-------- --------
Net cash (used in)/provided by investing activities (839) 23,974
-------- --------
Cash Flows from Financing Activities:
Net short-term loan payments -- (38,496)
Other, net 21 58
-------- --------
Net cash provided by/(used in) financing activities 21 (38,438)
-------- --------
Net (decrease)/increase in cash and cash equivalents (2,422) 18,329
Cash and cash equivalents - beginning of year 30,116 1,222
-------- --------
Cash and cash equivalents - end of quarter $ 27,694 $ 19,551
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Salant Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------
July 1, July 3,
2000 1999
Supplemental disclosures of cash flow information: Cash paid during the period
for:
<S> <C> <C>
Interest $ 59 $ 991
Income taxes 178 60
Supplemental investing and financing non-cash transactions:
Common Stock issued for Senior Notes -- 104,879
Common Stock issued for pre-petition interest -- 14,703
Common Stock issued for post-petition interest -- 121
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
SALANT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in Thousands of Dollars, Except Share Data)
(Unaudited)
Note 1. Financial Restructuring
On December 29, 1998 (the "Filing Date"), Salant Corporation ("Salant") filed a
petition under chapter 11 of title 11 of the United States Code (the "Bankruptcy
Code") with the United States Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court") (the "1998 Case") in order to implement a
restructuring of its 10-1/2 % Senior Secured Notes due December 31, 1998 (the
"Senior Notes"). Salant also filed its plan of reorganization (the "Plan") with
the Bankruptcy Court on the Filing Date in order to implement its restructuring.
On April 16, 1999, the Bankruptcy Court issued an order (the "Confirmation
Order") confirming the Plan. The effective date of the Plan occurred on May 11,
1999 (the "Effective Date"). See the Company's annual report on Form 10-K for
the fiscal year ended January 1, 2000 for more information on the Plan.
The authorized capital stock of Salant as of the Effective Date consists of (i)
45,000,000 shares of New Common Stock, $1.00 par value per share and (ii)
5,000,000 shares of preferred stock, $2.00 par value per share. No preferred
stock has been issued either in connection with the Plan or otherwise.
Post-restructuring, Salant has focused primarily on its Perry Ellis men's
apparel business and, as a result, Salant exited its other businesses, including
its Children's Group and non-Perry Ellis menswear divisions. During 1999, the
Company sold its John Henry and Manhattan businesses. These businesses included
the John Henry, Manhattan and Lady Manhattan trade names, the John Henry and
Manhattan dress shirt inventory, the leasehold interest in the dress shirt
facility located in Valle Hermosa, Mexico, and the equipment located at the
Valle Hermosa facility and at Salant's facility located in Andalusia, Alabama.
During 1999, Salant also sold its Children's Group, which primarily involved the
sale of inventory related to the Children's Group. Salant reports its business
operations as a single segment.
Note 2. Basis of Presentation and Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements include
the accounts of Salant and subsidiaries (collectively, the "Company"). (As used
herein, the Company includes Salant and its subsidiaries but excludes the Salant
Children's Group, which is reported herein as a discontinued operation.)
The Company's principal business is the designing, manufacturing, importing and
marketing of men's apparel. The Company sells its products to retailers,
including department stores, specialty stores and off-price retailers, in
addition to its own outlet stores. For a portion of 1999, the Company made
limited sales of certain products to national chains and mass volume retailers
throughout the United States.
The results of operations for the six months ended July 1, 2000 and July 3, 1999
are not necessarily indicative of a full year's operations. In the opinion of
management, the accompanying financial statements include all adjustments of a
normal recurring nature which are necessary to present fairly such financial
statements. Significant intercompany balances and transactions have been
eliminated in consolidation. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. These
condensed consolidated financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
annual report on form 10-K for the fiscal year ended January 1, 2000.
Note 3. Inventories
<TABLE>
<CAPTION>
July 1, January 1, July 3,
2000 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
Finished goods $ 26,250 $ 25,385 $ 22,790
Work-in-Process 7,930 10,208 9,418
Raw materials and supplies 6,741 6,076 9,409
---------- ---------- ----------
$ 40,921 $ 41,669 $ 41,617
======== ======== ========
</TABLE>
Note 4. Accumulated Other Comprehensive Income
<TABLE>
<CAPTION>
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustment Adjustment Income
2000
<S> <C> <C> <C>
Beginning of year balance $ (143) $ (2,801) $ (2,944)
Six months ended July 1, 2000 change 21 -- 21
------------ ------------ -----------
End of quarter balance $ (122) $ (2,801) $ (2,923)
=========== ========= =========
1999
Beginning of year balance $ (197) $ (3,856) $ (4,053)
Six months ended July 3, 1999 change 58 -- 58
----------- --------- -----------
End of quarter balance $ (139) $ (3,856) $ (3,995)
=========== ========= =========
</TABLE>
Note 5. Division Restructuring Costs
In the first half of 2000, the Company used $551 of the restructuring reserve,
relating primarily to severance costs and expenses related to holding the
Andalusia, Alabama facility as the Company attempts to sell the property. As of
July 1, 2000, the reserve for business restructuring totaling $1,757 consisted
of $499 of severance and other employee related costs, $512 for future lease
payments, and $746 of other miscellaneous restructuring costs. It is anticipated
that these expenditures will be completed by the first quarter of 2001.
Note 6. Discontinued Operations
In the first half of 2000 the net liabilities of discontinued operations
decreased by $321 to $988 due primarily to the payment of accruals. Net sales of
discontinued operations in the first half of 2000 and 1999 were $0 and $5,708,
respectively.
Note 7. Extraordinary Gain
In the second quarter of 1999, the Company recorded an extraordinary gain of
$24,703 related to the conversion of the Senior Notes and the related unpaid
interest into equity. Pursuant to the Plan (see Note 1), the holders of Salant's
Senior Notes received, in the aggregate, 95% of the issued and outstanding
shares of New Common Stock, subject to dilution, in full satisfaction of all of
the outstanding principal amount ($104,879), plus all accrued and unpaid
interest ($14,824) on the Senior Notes. The holders of Salant's Senior Notes
received 9,500,000 shares of the New Common Stock.
Note 8. Pro Forma Information
Per share amounts for the three months and six months ended July 3, 1999 are
based on the weighted average number of common shares as if the New Common Stock
had been issued at the beginning of the earliest period presented. Common stock
equivalents are not considered, as stock options for the New Common Stock are
anti-dilutive.
The following is a comparison of basic and diluted income/(loss) per share using
the historical shares outstanding. Common stock equivalents are not considered
for the Company's old common stock, as these stock options were cancelled or
anti-dilutive.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
----- ---- ---- ----
Basic and diluted income/(loss) per share:
<S> <C> <C> <C> <C>
From continuing operations $0.26 ($0.21) $0.44 ($0.47)
From discontinued operations -- -- -- (0.14)
From extraordinary gain -- 2.03 -- 1.81
-------- ------------ -------- --------
Basic and diluted income per share $0.26 $1.82 $0.44 $1.20
======= ======= ======= =======
Weighted average common stock outstanding 9,901 12,150 9,901 13,677
====== ====== ====== ======
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
Second Quarter of 2000 Compared with Second Quarter of 1999
Net Sales
Net sales decreased by $16.0 million, or 25.9%, in the second quarter of 2000 as
compared to the second quarter of 1999. This decrease primarily resulted from a
reduction of $19.7 million in sales for the non-Perry Ellis businesses that were
sold or closed in 1999. Sales of Perry Ellis products experienced a net increase
of $3.7 million, or 8.7%, for the second quarter of 2000 as compared to the
second quarter of 1999.
Gross Profit
The gross profit percentage increased to 30.8% in the second quarter of 2000, as
compared to 15.8% in the second quarter of 1999. This increase resulted from the
reduction of sales at lower margins in the non-Perry Ellis businesses that were
closed or sold in 1999. The gross profit percentage on Perry Ellis products
increased by 3.7% from the second quarter of 1999, due to a favorable change in
sales mix and lower product sourcing costs.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the second quarter of
2000 decreased to $11.9 million (25.9% of net sales) from $13.0 million (21.1%
of net sales) for the second quarter of 1999. The decrease in SG&A was primarily
a result of the elimination of personnel and overhead costs related to the sales
and closure of the non-Perry Ellis businesses during 1999.
Income/(loss) from Continuing Operations Before Interest, Income Taxes and
Extraordinary Gain
Income from continuing operations before interest, income taxes and
extraordinary gain was $2.3 million for the second quarter of 2000 as compared
to a loss of $2.6 million for the second quarter of 1999. The improvement of
$4.9 million was due primarily to the improved margins for second quarter of
2000 that the Company achieved due to exiting the businesses that were sold or
closed during 1999.
Interest Income, Net
Net interest income was $291 thousand for the second quarter of 2000 compared
with interest income of $34 thousand for the second quarter of 1999. The
increase in interest income resulted from the elimination of short-term
borrowings and the increase in funds invested from the proceeds of the sale of
the John Henry and Manhattan businesses in 1999.
Income/(loss) from Continuing Operations Before Extraordinary Gain
Income from continuing operations before extraordinary gain was $2.6 million for
the second quarter of 2000 as compared to a loss of $2.6 million for the second
quarter of 1999, an improvement of $5.2 million.
Extraordinary Gain
An extraordinary gain of $24.7 million was recorded in the second quarter of
1999 due to the exchange of the Senior Notes of $104.9 million and the related
interest payable of $14.8 million for 9.5 million shares of the Company's New
Common Stock.
Net Income
In the second quarter of 2000, the Company reported net income of $2.6 million
(which included the $24.7 million extraordinary gain discussed above), or $0.26
per share, as compared with net income of $22.1 million, or $2.21 per share, in
the second quarter of 1999.
Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring
Charges and Loss from Discontinued Operations
Earnings before interest, taxes, depreciation, amortization, restructuring
charges, and loss from discontinued operations was $3.2 million (7.0% of net
sales) in the second quarter of 2000, compared to a loss of $1.1 million (1.8%
of net sales) in the second quarter of 1999, an improvement of $4.3 million. The
Company believes this information is helpful in understanding cash flow from
operations that is available for debt service and capital expenditures. This
measure is not contained in Generally Accepted Accounting Principles and is not
a substitute for operating income, net income or net cash flows from operating
activities.
Year to Date 2000 Compared Year to Date 1999
Net Sales
Net sales decreased by $37.9 million, or 27.0% in the first half of 2000, as
compared to the first half of 1999. This decrease primarily resulted from a
reduction of $45.0 million in sales for the non-Perry Ellis businesses that were
sold or closed in 1999. Sales of Perry Ellis products experienced a net increase
of $7.1 million or 7.4% for the first half of 2000, as compared to the first
half of 1999.
Gross Profit
The gross profit percentage increased to 27.1% in the first half of 2000 from
18.9% in the first half of 1999. This increase resulted from the reduction of
sales at lower margins in the non-Perry Ellis businesses that were closed or
sold in 1999. The gross profit percentage on Perry Ellis products decreased by
0.3% from the first half of 1999, primarily due to an unfavorable change in
sales mix for the first quarter partially offset by a favorable change in the
sales mix for the second quarter.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the first half of 2000
decreased to $23.9 million (23.3% of net sales) from $29.8 million (21.2% of net
sales) for the first half of 1999. The decrease in SG&A was primarily a result
of the elimination of personnel and overhead costs related to the sales and
closure of the non-Perry Ellis businesses during 1999.
Royalty Income
Royalty income decreased by $1.3 million in the first half of 2000 as compared
to the first half of 1999. The decrease was due to the sale at the end of the
first quarter of 1999 of the Company's John Henry and Manhattan trademarks and
their related licenses.
Provision for Restructuring Costs
In the first half of 1999, the Company recorded a restructuring provision of
$4.0 million. The provision was primarily for severance costs related to the
sale of the John Henry and Manhattan dress shirt businesses and the exit from
its private label denim jeans business.
Income/(Loss) from Continuing Operations Before Interest, Income Taxes and
Extraordinary Gain
Income from continuing operations before interest, income taxes and
extraordinary gain was $3.8 million for the first half of 2000 as compared to a
loss of $5.5 million for the first half of 1999. The improvement of $9.3 million
was due primarily to restructuring charges and lower gross profit for the first
half of 1999 that the Company incurred relating to the businesses that were sold
or closed.
Interest Income/(Expense)
Net interest income was $544 thousand for the first half of 2000 compared with
interest expense of $772 thousand for the first half of 1999. The decrease in
interest expense resulted from the elimination of short-term borrowings and the
increase in funds invested from the proceeds of the sale of John Henry and
Manhattan businesses in 1999.
Income/(loss) from Continuing Operations Before Extraordinary Gain
Income from continuing operations before extraordinary gain was $4.3 million for
the first half of 2000 as compared to a loss of $6.4 million for the first half
of 1999, an improvement of $10.7 million.
Discontinued Operations
In the first half of 1999, the Company provided $2.0 million for future losses
related to the phase out period and the closing of the Children's Group's
production and distribution facilities.
Extraordinary Gain
An extraordinary gain of $24.7 was recorded in the second quarter of 1999 due to
the exchange of the Senior Notes of $104.9 million and the related interest
payable of $14.8 million for 9.5 million shares of the Company's New Common
Stock.
Net Income
In the first half of 2000, the Company reported net income of $4.3 million, or
$0.44 per share, as compared with net income of $16.4 million (which included
the $24.7 million extraordinary gain discussed above), or $1.63 per share, in
the first half of 1999.
Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring
Charges and Loss from Discontinued Operations
Earnings before interest, taxes, depreciation, amortization, restructuring
charges and loss from discontinued operations was $6.1 million (5.9% of net
sales) in the first half of 2000, compared to $1.3 million (0.9% of net sales)
in the first half of 1999, an increase of $4.8 million. The Company believes
this information is helpful in understanding cash flow from operations that is
available for debt service and capital expenditures. This measure is not
contained in Generally Accepted Accounting Principles and is not a substitute
for operating income, net income or net cash flows from operating activities.
Liquidity and Capital Resources
On May 11, 1999, the effective date of the Plan, the Company entered into a
syndicated revolving credit facility (the "Credit Agreement") with The CIT
Group/Commercial Services, Inc. ("CIT") pursuant to and in accordance with the
terms of a commitment letter dated December 7, 1998.
The Credit Agreement provides for a general working capital facility, in the
form of direct borrowings and letters of credit, up to $85 million subject to an
asset-based borrowing formula. The Credit Agreement consists of an $85 million
revolving credit facility, with a letter of credit subfacility. As collateral
for borrowings under the Credit Agreement, the Company granted to CIT and a
syndicate of lenders arranged by CIT (the "Lenders") a first priority lien on
and security interest in substantially all of the assets of the Company. The
Credit Agreement has an initial term of three years.
The Credit Agreement also provides, among other things, that (i) the Company
will be charged an interest rate on direct borrowings of .25% in excess of the
Prime Rate or at the Company's request, 2.25% in excess of LIBOR (as defined in
the Credit Agreement), and (ii) the Lenders may, in their sole discretion, make
loans to the Company in excess of the borrowing formula but within the $85
million limit of the revolving credit facility. The Company is required under
the Credit Agreement to maintain certain financial covenants relating to
consolidated tangible net worth, capital expenditures, maximum pre-tax
losses/minimum pre-tax income and minimum interest coverage ratios. The Company
was in compliance with all applicable covenants at July 1, 2000. Pursuant to the
Credit Agreement, the Company is charged the following fees: (i) a documentary
letter of credit fee of 1/8 of 1.0% on issuance and 1/8 of 1.0% on negotiation;
(ii) a standby letter of credit fee of 1.0% per annum plus bank charges; (iii) a
one time commitment fee of $325 thousand; (iv) an unused line fee of .25%; (v)
an agency fee of $100 thousand (for the second and third years of the term of
the Credit Agreement); (vi) a collateral management fee of $8,333 per month; and
(vii) a field exam fee of $750 per day plus out-of-pocket expenses.
At July 1, 2000, there were no direct borrowings outstanding; letters of credit
outstanding under the Credit Agreement were $35.4 million and the Company had
unused availability, based on outstanding letters of credit and existing
collateral, of $16.9 million. In addition to the unused availability, the
Company had approximately $27.7 million of cash available to fund its
operations. At the end of the second quarter 1999 there were no direct
borrowings outstanding; letters of credit outstanding were $30.0 million and the
Company had unused availability of $19.2 million and $19.6 million of cash
available to fund its operations.
The Company's cash used by operating activities for the first half of 2000 was
$1.6 million, which primarily reflects (i) a decrease in inventory of $0.7
million, (ii) an increase in accounts payable of $0.3 million, (iii) non-cash
charges, such as depreciation and amortization of $2.3 million and (iv) income
from continuing operations of $4.3 million. These items were offset by an
increase in net accounts receivable of $3.2 million, a decrease in accrued
liabilities and reserve for business restructuring of $3.7 million, a decrease
in chapter 11 liabilities of $1.4 million, and other items of $0.6 million.
Cash used by investing activities for the first half of 2000 was $839 thousand,
which reflects $625 thousand of capital expenditures and $214 thousand for the
installation of store fixtures in department stores. During fiscal 2000, the
Company plans to make capital expenditures of approximately $3.2 million and to
spend an additional $1.6 million for the installation of store fixtures in
department stores.
Factors that May Affect Future Results and Financial Condition.
This report contains or incorporates by reference forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Where any such forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, the Company cautions that
assumed facts or bases almost always vary from the actual results, and the
differences between assumed facts or bases and actual results can be material,
depending on the circumstances. Where, in any forward-looking statement, the
Company or its management expresses an expectation or belief as to future
results, there can be no assurance that the statement of the expectation or
belief will result or be achieved or accomplished. The words "believe",
"expect", "estimate", "project", "seek", "anticipate" and similar expressions
may identify forward-looking statements. The Company's future operating results
and financial condition are dependent upon the Company's ability to successfully
design, manufacture, import and market apparel. Taking into account the
foregoing, the following are identified as important factors that could cause
results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company:
Competition. The apparel industry in the United States is highly competitive and
characterized by a relatively small number of multi-line manufacturers (such as
the Company) and a large number of specialty manufacturers. The Company faces
substantial competition in its markets from manufacturers in both categories.
Many of the Company's competitors have greater financial resources than the
Company. The Company also competes for private label programs with the internal
sourcing organizations of many of its own customers.
Strategic Initiatives. In the second quarter of 2000 the Company entered into a
license agreement with Hartz & Company, Inc. to design, produce and distribute
sportswear and furnishings for Hartz's exclusive Tallia brand. Management of the
Company is continuing to consider various strategic opportunities, including but
not limited to, new menswear licenses and/or acquisitions. Management is also
exploring ways to increase productivity and efficiency, and to reduce the cost
structures of its respective businesses. Through this process management expects
to increase its distribution channels and achieve effective economies of scale.
No assurance may be given that any additional transactions resulting from this
process will be announced or completed.
Apparel Industry Cycles and other Economic Factors. The apparel industry
historically has been subject to substantial cyclical variation, with consumer
spending on apparel tending to decline during recessionary periods. A decline in
the general economy or uncertainties regarding future economic prospects may
affect consumer spending habits, which, in turn, could have a material adverse
effect on the Company's results of operations and financial condition.
Retail Environment. Various retailers, including some of the Company's
customers, have experienced declines in revenue and profits in recent periods
and some have been forced to file for bankruptcy protection. To the extent that
these financial difficulties continue, there can be no assurance that the
Company's financial condition and results of operations would not be adversely
affected.
Seasonality of Business and Fashion Risk. The Company's principal products are
organized into seasonal lines for resale at the retail level during the Spring,
Transition, Fall and Holiday Seasons. Typically, the Company's products are
designed as much as one year in advance and manufactured approximately one
season in advance of the related retail selling season. Accordingly, the success
of the Company's products is often dependent on the ability of the Company to
successfully anticipate the needs of the Company's retail customers and the
tastes of the ultimate consumer up to a year prior to the relevant selling
season.
Foreign Operations. The Company's foreign sourcing operations are subject to
various risks of doing business abroad, including currency fluctuations
(although the predominant currency used is the U.S. dollar), quotas and, in
certain parts of the world, political instability. Any substantial disruption of
its relationship with its foreign suppliers could adversely affect the Company's
operations. Some of the Company's imported merchandise is subject to United
States Customs duties. In addition, bilateral agreements between the major
exporting countries and the United States impose quotas, which limit the amount
of certain categories of merchandise that may be imported into the United
States. Any material increase in duty levels, material decrease in quota levels
or material decrease in available quota allocation could adversely affect the
Company's operations. The Company's operations in Asia are subject to certain
political and economic risks including, but not limited to, political
instability, changing tax and trade regulations and currency devaluations and
controls. Although the Company has experienced no material foreign currency
transaction losses, its operations in the region are subject to an increased
level of economic instability. The impact of these events on the Company's
business, and in particular its sources of supply cannot be determined at this
time.
Dependence on Contract Manufacturing. The Company produces substantially all of
its products (in units) through arrangements with independent contract
manufacturers. As the Company has closed its manufacturing facilities during
1999, the use of independent contractors has increased in fiscal year 2000. The
use of such contractors and the resulting lack of direct control could subject
the Company to difficulty in obtaining timely delivery of products of acceptable
quality. In addition, as is customary in the industry, the Company does not have
any long-term contracts with its fabric suppliers or product manufacturers.
While the Company is not dependent on one particular product manufacturer or raw
material supplier, the loss of several such product manufacturers and/or raw
material suppliers in a given season could have a material adverse effect on the
Company's performance.
Because of the foregoing factors, as well as other factors affecting the
Company's operating results and financial condition, past financial performance
should not be considered to be a reliable indicator of future performance, and
investors are cautioned not to use historical trends to anticipate results or
trends in the future. In addition, the Company's participation in the highly
competitive apparel industry often results in significant volatility in the
Company's common stock price.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
During the second quarter of 2000, the Company did not file an 8-K.
Exhibits
Number Description
27 Financial Data Schedule
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SALANT CORPORATION
Date: August 14, 2000 /s/ Awadhesh K. Sinha
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Awadhesh K. Sinha
Chief Operating Officer and
Chief Financial Officer
